International Trade Frictions Escalate, Resilience of Domestic Consumption May Limit Decline [SMM Aluminum Morning Meeting Summary]

6.3 SMM Aluminum Morning Meeting Summary

Futures Market: On Friday, the most-traded SHFE aluminum 2507 contract opened at 20,165 yuan/mt, with a high of 20,180 yuan/mt, a low of 20,070 yuan/mt, and closed at 20,070 yuan/mt. Trading volume was 171,000 lots, and open interest was 196,000 lots. On the same day, LME aluminum opened at $2,450/mt, with a high of $2,456/mt, a low of $2,436/mt, and closed at $2,448.4/mt.

Macro: (1) The US claimed that China violated the consensus reached at the China-US Geneva Economic and Trade Talks. In response to related remarks, the spokesperson of the Ministry of Commerce stated that China is firm in safeguarding its rights and interests and sincere in implementing the consensus. (Bearish ★) (2) The spokesperson of the European Commission expressed deep regret over the decision by US President Trump to increase steel and aluminum tariffs from 25% to 50% starting June 4, further exacerbating economic uncertainties on both sides of the Atlantic. The spokesperson stated that negotiations are still ongoing, with both sides agreeing to accelerate the process, and talks will be held this week. (Bearish ★) (3) China's manufacturing PMI in May rose by 0.5 percentage points MoM, indicating an improvement in the manufacturing sector's prosperity level. The export container freight index rebounded, and port cargo throughput remained at a relatively high level. (Bullish ★)

Fundamentals: (1) According to SMM statistics, as of June 3, the inventory of aluminum ingots in major domestic consumption areas was 519,000 mt, an increase of 8,000 mt from the previous Friday. (Bearish ★) (2) According to SMM statistics, as of June 3, the combined social inventory of secondary aluminum alloy ingots in Foshan, Ningbo, and Wuxi was 14,561 mt, an increase of 244 mt from the previous trading day. (Bearish ★) (3) On May 29, SMM statistics showed that the inventory of aluminum in the Shanghai Bonded Zone was 102,000 mt, and the inventory in the Guangdong Bonded Zone was 13,700 mt, totaling 115,700 mt. The inventory decreased by 800 mt WoW. (Bullish ★)

Primary Aluminum Market: On Friday morning, the center of SHFE aluminum prices fell to around 20,150 yuan/mt below the daily average line, oscillating and consolidating. The sentiment to sell in east China increased compared to before, coupled with the diversion of some cargoes from south China to east China, which suppressed the upside of market premiums. Transactions were concluded at the SMM average price. On Friday, SMM A00 aluminum was reported at 20,290 yuan/mt, down 90 yuan/mt from the previous trading day, with a premium of 110 yuan/mt against the 06 contract, unchanged from the previous trading day. In the central China market, after the center of aluminum prices fell, downstream enterprises slightly restocked, but suppliers' willingness to sell significantly decreased. Intraday premiums remained firm, with a premium of around 10 yuan/mt against the SMM central China average price. Overall, consumption in central China showed a weakening trend, with downstream purchasing power slowing down. However, in-transit cargoes in the market also declined WoW, presenting a situation of weak supply and demand. There were slight differences between buyers and sellers, and premiums remained stagnant. The SMM survey recorded the price of A00 aluminum in central China against the SHFE aluminum 2506 contract at 20,230 yuan/mt, down 80 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was -60 yuan/mt, up 10 yuan/mt from the previous trading day. It was trading at a premium of 50 yuan/mt against the 2506 contract, up 10 yuan/mt.

Secondary aluminum raw materials: Last Friday, the centralized quotes for baled UBC aluminum scrap ranged from 15,250 to 15,850 yuan/mt (tax excluded), while the centralized quotes for shredded aluminum tense scrap ranged from 15,600 to 17,100 yuan/mt (tax excluded). By region, aluminum prices in Shanghai, Jiangxi, Jiangsu, Henan, Shandong, and other places were closely linked, with price adjustments ranging from 50 to 100 yuan/mt. In Guizhou and Foshan, prices remained unchanged from the previous day. Regarding the price difference between A00 aluminum and aluminum scrap, the price difference between A00 aluminum and mechanical casting aluminum scrap in Shanghai increased by 18 yuan/mt from the previous day to 1,845 yuan/mt, while the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan decreased by 90 yuan/mt from the previous day to 1,424 yuan/mt. According to the SMM survey, regarding the implementation progress of "reverse invoicing", Anhui, Henan, Hubei, and other places have continued to increase their efforts in implementing invoicing. Traders in relevant regions have once again adopted a wait-and-see attitude towards subsequent prices. In the short term, the market price of aluminum scrap continued to fluctuate at highs. The tight supply of aluminum tense scrap remained unchanged, providing solid price support. Wrought aluminum alloy scrap continued to fluctuate rangebound with primary aluminum, but the cumulative risk of a high-level correction in primary aluminum, combined with weak demand during the off-season, limited the upside room. On the end-user side, cost pressure and weak terminal orders continued to compete, and the operating rate of enterprises might remain low. The narrowing of import losses might partially alleviate supply pressure, but the transmission effect was limited. Regional and product price spreads might further diverge. Tight supply in South China and other regions might support localized price increases, while prices in regions with weak demand would face downward pressure.

Secondary aluminum alloy: Last Friday, the SMM A00 aluminum price fell by 90 yuan/mt from the previous trading day to 20,290 yuan/mt. The secondary aluminum market generally followed the decline, with the domestic SMM ADC12 price falling by 100 yuan/mt to the range of 20,100-20,300 yuan/mt. In the import market, the CIF quotes for imported ADC12 continued to range from 2,380 to 2,400 US dollars/mt. Due to the decline in domestic prices, the immediate import loss slightly expanded to around 300 yuan/mt. The local tax-excluded quotes for ADC12 in Thailand were concentrated at 82 Thai baht/kg. The sentiment for downstream inventory replenishment during the Dragon Boat Festival holiday was low, providing limited support to demand. Secondary aluminum smelters might operate normally or take a 1-2 day holiday during the Dragon Boat Festival holiday, with a slight decrease in the overall industry operating rate. In the short term, under weak demand, the price of secondary aluminum alloy was expected to remain in the doldrums.

Summary: On the macro side, the escalation of Sino-US trade frictions and the EU's concerns about the US raising aluminum tariffs (to 50%) have increased market uncertainty. However, the rebound in China's manufacturing PMI and the improvement in export indicators in May provided demand support, and economic resilience might limit the decline. Aluminum prices were under short-term pressure and might remain in the doldrums. Fundamentally, domestic aluminum operating capacity remained stable. Notably, the proportion of liquid aluminum alloying increased at some aluminum smelters in north China, reducing casting ingot volumes and affecting arrivals in major consumption areas. Cost side, aluminum production costs rose during the week. As of last Thursday, the domestic aluminum industry's average all-in cost stood at approximately 17,200 yuan/mt, up 258 yuan/mt WoW, mainly due to ore supply disruptions driving alumina prices higher. Aluminum costs increased 1.5% WoW, squeezing smelter margins. Demand side, downstream sectors showed signs of off-season expectations, with PV-related aluminum demand declining and automotive material demand expected to weaken in mid-to-late June. Construction aluminum demand remained lackluster, but aluminum wire and cable operating rates stayed high, supported by orders from State Grid. Macro-wise, the domestic favorable sentiment persisted, while overseas macro uncertainties remained. Fundamentally, stronger-than-expected domestic aluminum ingot inventory drawdowns supported aluminum prices and spot premiums. Some industries already reflected off-season weakness, but the overall decline was milder than expected, indicating resilient demand. Subsequent focus should center on inventory and demand dynamics. With mixed factors, domestic aluminum prices are likely to fluctuate rangebound in the near term.

[The information provided is for reference only. This article does not constitute direct investment advice. Clients should exercise caution and avoid using it as a substitute for independent judgment. Any decisions made by clients are unrelated to SMM.]

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